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With the recent upward revision in Fixed Deposit Rates for NRIs, one can get extremely high interest rates from Indian Banks. I understand these are not FDIC insured products and are governed by Reserve Bank of India Rules. Example of rates I found at IDBI Bank (A Govt. of India owned bank)

http://www.idbi.com/nri-interest-rates.asp      

The 5 year USD rate of 5.56% . turns out to a compounded return of 6.30% as compouding is done semi-annually.  Note that these deposits are not converted to lNR and hence there is no currency risk.   Further, these rates are calculated using the formula of LIBOR Swap Rate + 400 basis points and reset monthly. Today's swap rate  is 1.88%. So on Sep. 1, we are looking at a rate of around 5.88%. Swap rates can be found at:

http://wsj.com/mdc/public/page/2_3020-moneyrate.html 

 

 
Foreign Currency Non Resident - FCNR (B) Deposit rates (% p.a.) Effective August 20,2013 & (August 1 , 2013)
 
Maturity Slab USD GBP EUR AUD CAD JPY SGD HKD CHF
1 Year - less than 2 Years 2.67 2.86 2.47 4.48 3.37 2.41 2.48 2.51 2.24
2 Years - less than 3 Years 2.48 2.71 2.56 4.65 3.55 2.28 2.71 2.65 2.20
3yrs to less than 4yrs 4.78
 (3.78)
4.87
(3.87)
4.74
(3.74)
6.89
(5.89)
5.78
(4.78)
4.32
(3.32)
5.00
(4.00)
4.93
(3.93)
4.34
(3.34)
4yrs to less than 5yrs 5.17
(4.17)
5.11
(4.11)
4.96
(3.96)
7.19
(6.19)
6.03
(5.03)
4.38
(3.38)
5.41
(4.41)
5.31
(4.31)
4.52
(3.52)
5yrs only 5.56
(4.56)
5.41
(4.41)
5.20
(4.20)
7.42
(6.42)
6.26
(5.26)
4.46
(3.46)
5.80
(4.80)
5.70
(4.70)
4.73
(3.73)

I have looked at many other comparable banks and it seems that amongst the government owned banks - Bank of India, IDBI and Bank of Baroda do not charge any penalty for pre-mature withdrawal after 1 year. This can be useful in the current environment so that one can cancel the existing Fixed Deposit and rebook a new one at the higher rate. However, it appears that none of these banks make opening and operating the account an easy process. They require forms to be filled out - attested by notary and then mailed to India. Further, instructions need to be sent in hard-copy to the branch in India. 

I am curious as to which bank offers the best customer service after account opening and also makes the account opening process simpler. I understand private banks like ICICI, HDFC offer better customer service but they generally have lower interest rates and higher fees.


 


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Sounds like a great interest rate, but in reality the risks are too great. I just don't trust the local currency to hold against the dollar. You might lose money, even with a 5% APY.

Yeah there's always currency risk when investing in foreign currency cd , which often wipes out any interest gains

The rupee has appreciated quite a bit recently , so unless you believe that will continue and not reverse , the interest rate isn't nearly as big a concern as the currency risk

This also completely ignored safety risks such as lack of FDIC protection etc

I think these are USD denominated deposits. The interest rate looks too low for if there is currency risk.

I have good family friends that claim they get 9% return in Indian Banks.  They are Indian and travel back to India frequently.  Whether currency exchanges and fluctuations erode that money, i'm not sure.  But they have millions of US dollars committed over there, and they feel comfortable.  I haven't inquired further myself do to a general uneasiness I get from most foreign governments, and I don't have the money to risk even for 9%.

SUCKISSTAPLES said:   Yeah there's always currency risk when investing in foreign currency cd , which often wipes out any interest gains

The rupee has appreciated quite a bit recently , so unless you believe that will continue and not reverse , the interest rate isn't nearly as big a concern as the currency risk

This also completely ignored safety risks such as lack of FDIC protection etc

  SIS,  the rupee has DEPRECIATED drastically.  People with rupee denomited deposits have lost > 10% in less than 4 months.  
However, these are USD denominated.  So the only risks are
1) Bad Customer service
2) Lack of FDIC insurance
And they are open only to Non-resident Indians
 

These are the risks I see:
Possible tax by India
Hassle in getting money out
Risk of default - comments?
 

Zaos,
Possible tax by India is not a concern as all foreign taxes paid can be credited 1-1 on US Tax Return.

Money movement out should be similar to other requests i.e. fill out paperwork and send them in. At worse, you have to make a trip to India.

Default risk is low as these are all Government Owned Banks making sizable profits and are ultimately governed by Reserve Bank of India rules regarding liquidity provisions. RBI currently has $270 billion in foreign currency reserves. There have been no nationalized banks which have defaulted in their entire history.

Where do I find the definitions/meaning for all the short forms they use like: NRE, FCNR etc...


update: http://www.tracenotes.com/articles/nri-banking-nre-nro-rfc-fcnr.html

I recently opened one FCNR account at SBI on recent trip to india via check. Took 3 weeks for them to open and then they deducted $30 charge for some foreign transaction collection from my account which I never authorized, they never told us. Very painful, contacting them again and again and nothing happened.

Customer service is bad in almost all banks in india. Indian bank insure upto only INR, 100000 that is nothing compared to FDIC limit. Getting interest statement from them is also pain for filing tax here as they don't send yearly statement. You have to calcualte yourself and report. Most Indian bank doesn't allow you to open FCNR account from here, you have to go personally. But I think its worth inspite of these hassels.

OP posted a product where currency rate isn't an issue as its all USD.  But interest rate isn't worth the risk of not having FDIC and possible bad customer service.

However, you could open a NRE Fixed Account account at the bigger private banks such as HDFC, ICICI, Citibank, where they offer interset rates of up to 9% for a year.  The downside is currency risk, which right now, as the rupee is depreciating, the currency risk might be mitigated when/if dollar weakens and/or rupee stregthens.  You would be speculating on what you think the currency is going to be. If the worst case is that rupee doesn't appreciate, could you leave your money in India and let it ride?  If not, you shouldn't be considering this route as there is a chance you will lose money.

Just keep in mind that if you have $10,000 USD or more at any foreign bank at any time of the year, make sure you file 90-22.1, which is separate from your tax return and due in June.

It's not a currency risk one should be worried about. These are USD accounts. It's not that they're paying a USD interest rate on rupees. What I would be concerned about is the hoops one must go through in opening an account in India, the logistics of depositing and withdrawing money, the financial stability of the bank and political stability. Personally, I wouldn't bother.

Is ICICI or SBI going to match these rates? I checked their websites but they don't seem to have updated it yet...

ICICI generally has a rate 1% lower than other banks. SBI has a pre-mature withdrawal penalty. Why bother with them?

hmmm I am already customer with them. ICICI and SBI have NRE rates almost same though. I am assuming they will also bring their rates up to compete with IDBI, as it's a recent change from IDBI

If you could convert your USD into AUD (australian dollar) and deposit it in IDBI, you would get a better rate of 4.48 for 1 year. But questions is how to convert it cheaply?

Well , in that case convert to rupee and get 8.75 % : , it all depends if you want to take currency risks...

I also checked  couple other banks already raised FCNR including Syndicate...so hope ICICI will act soon

Don't expect ICICI to match.  Even prior to this hike, they are lower by 1%. The government owned banks have essentially been ordered by RBI to raise their rates. For private banks, they have no incentive to do so as they cannot lend it out at the higher rate.

You can easily convert to AUD when making a deposit in USD. The receiving bank converts using  the RBI reference rate which  is much better than services like xoom etc.

Yeah, I have personally invested about $40k in fixed deposits @ 9% interest rates. The risk is the money gets converted to rupee but is fully convertible back to dollars. If the rupee continues to depreciate (as being the trend recently) you take the risk but at 9% rate of return I decided to go for it.

The 5% that others are talking----the investment is not converted to rupees but stays in dollars. Hope this helps!

What about SBI ? I really find process difficult to open account with new banks

burgerwars said:   It's not a currency risk one should be worried about. These are USD accounts. It's not that they're paying a USD interest rate on rupees. What I would be concerned about is the hoops one must go through in opening an account in India, the logistics of depositing and withdrawing money, the financial stability of the bank and political stability. Personally, I wouldn't bother.
  
While I gave Op green for an interesting topic, I agree.   I know absolutely nothing about the stability of Indian Banks,  but I don't see risking money on something that isn't FDIC insured to get 5% interest.

SBI should match eventually. But their customer service is awful. For opening a new account, the local branch in USA can attest the documents but they charge for that. Also, you have to mail the documents directly to India. Finally, don't under-estimate the pre-mature withdrawal penalty with them.

nanga said:   Indian bank insure upto only INR, 100000 that is nothing compared to FDIC limit.
 

  $1600 to be exact, which rules out any private banks IMO. I'd still be concerned about state-owned banks but the premium seems worth that (small) risk. That said, it doesn't seem worth the hassles of deposit and withdrawal and annual reporting to me. That said, if I had millions burning a hole in my pocket for the next 5 years I'd probably do it.

citinri.com has online account opening

However CSRs suck. and B&M prescence only in some major metros. Which sucks for me since I lost my account # and have to go in person to update info

http://www.online.citibank.co.in/citi-nri/customer-service/nriapplicationcenters.htm?eOfferCode=NRHIWTFN

Citi's interest rates are like 0.01%. This is to suck in customers whose FDs are set to auto-renew. They used to have matching rates earlier. No reason to ever go with them.

https://www.online.citibank.co.in/citi-nri/products-services/foreign-currency-account.htm?site=PORTAL&creative=NGX§ion=HTTPREDR&agencyCode=XER&campaignCode=&productCode=&eOfferCode=HTTPREDR 

Tenure USD( in %) GBP( in %) EURO( in %) Jap Yen( in %) Canadian$( in %) Australian$( in %)
  APR* Yield# APR* Yield# APR* Yield# APR* Yield# APR* Yield# APR* Yield#
365 - 399 Days 0.05 0.05 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 1.75 1.75
400 - 729 Days 1.33 1.33 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 1.85 1.86
730 Days to 5 Years 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 1.85 1.88

 APR and Yield is for the minimum tenor in each slab.
#Yield is defined as the semi-annually compounded yield.
*APR is defined as the Annual Percentage Rate.

In India, I heard:  "If 100 criminals walks away without punishment then it's fine, but one innocent should not be punished."  

So my point is: If I do not earn interest on principle then it's fine, but I cannot afford to loose principle amount as its earned by doing hard work. So, if it's not FDIC Insured, then it will not give well sleep.

When I went India last winter, I stayed in touch with one ICICI NRI manager, to know about options and benefits. First of all, he recommended me to transfer money to Rs and take benefit of 9% to 10% interest rate, but he did not alerted me on risk of loosing gain on Currency Risk

(Those who do not know what is this currency risk, here is quick calculation:  Lets say, last year when Indian Banks brought 9% to 10% Interest rate scheme, at that time $1 = 56 Rs rate was. So you sent $1.78 ( 100 Rs) to deposit in Indian Bank. now, one year is over and they given you 10% interest, so right now, you got 110 Rs. balance in India Bank. Now you want to bring this money to USA. so right now rate is going on $1 = 64 Rs. so 110 Rs when you bring back to US, you get $1.71 in your hand (remember, last year you had sent $1.78 to India). So, this turned out to be loosing principle + hassle of transfer back and forth. Plus when you transfer back and forth, even Bank is saying, they advertise $0 fee to transfer, they make money in transfer rates.)

ICICI Manager did not reveal me all internals so I told him, this is not going to work, so then he introduced me ICICI Guaranteed Savings Insurance Plan  Game is something like this: for example, from 1st year to 9th year, you pay 1 Lacks per year and then from 9th year onward, you do not have to make any payment, and at 15th year, they give you very big amount back (like 15 Lacks or more) plus during this 15 years time they cover you by Insurance policy also.  By hearing it feels like very good scheme, you get impress with it, later...I did little research and found this article     for this scheme...  By reading it, it's looks like, this scheme is product of very intelligent mind, where general public can easily gets impress and gets in a bottle. But after reading calculation and breakdown, it shows that, without using this scheme, you can make more money yourself by following it.

Also, I felt like, meaning of  "Customer Service"  for Indian Banks is very poor, For minor-minor matters it takes lots of effort to get resolved or you have to give up. They place charge on your account without revealing terms and condition first, and once you see charge, it takes much effort to get removed. For example, ICICI Bank prints security verification code table behind Debit Card only, it means, if you have to do online transfer from ICICI Bank to other ICICI Bank, then you need to have this debit card from Bank. While staying in USA, what is use of Indian Bank debit card ? Accepting Debit Card from ICICI Bank means, opening a security flow yourself to your account. I have read couple of news in past, that, In India, people have lost money from their account without account owners knowledge and finally news comes in the newspaper about police complain..etc.etcc. In short, To get online transfer facility, ICICI Bank is forcing you to take their Debit Card so you can use verification code table from backside of card, and by doing this, they charges you Debit Card Fee per year (even you do not have need for Debit Card).  Indian TV commercials and Financial Products are very intelligent, interesting and impressive.

So, money wise, I have better trust in US Economy and their effort to fix it. To manage my retirement plan, I have more trust in me, then depending on Social Security.. If you have time, there are lots of way to earn by investing your dollar in US economy.. If your money is in US, you can do anything with it instantly with changing market and economy, which is not possible with uninsured Indian Banks. If you check with local banks, they have Promotional Money Market Rate for 1%, no strings attached.

The private banks like ICICI  are specifically in the business of making money through fees, upselling etc. which is why I have referred to government owned banks in my original post. Some government owned banks like IDBI are extra competitive and do away with fees, bonus rates for NRI accounts, no premature closure fees etc.

Thanks PFI for the insightful post. Customer service has entirely different meaning whenever I had the misfortune of digging into SBI/UTI and Indian Bank. They basically don't give a damn. You can blame the population figure but I think it is just the overall attitude.

just returned from India. We are only in the first quarter of the $-INR game. RBI(Indian equivalent of Fed) & MOF (Indian Treasury) is running out of options. RBI has pretty much played all the strong cards it had; restricting currency flows, increasing import duties, increasing interest rates and operation twist (long term Vs Short term int rate arbitrage to make long term$ invst appealing).

The next logical step will be an offering similar to the resurgent india bond (google it) by EOY. Clear your credit lines for that offering as the big boys will load up on that offering. Last time around citi offered a lending product which offered you a 17:1 leverage for investments in these bonds.

http://www.nytimes.com/1998/08/19/nyregion/india-taps-into-its-d...

how did that work out last time around?

vickh said:   how did that work out last time around?
  It was a win win. Nris got a guaranteed 2% spread, GOI got the dollars they needed & some pr that indians supported them and retail banks with an india presence made money by lending against RIB at a spread of 1%.   They ran the same play in 2000-01 with the millenium(?) bonds.  The only difference this time around is that the current account deficit in absolute terms is much wider and therefore the terms have to be much more attractive.

drd2501 said:   
vickh said:   how did that work out last time around?
  It was a win win. Nris got a guaranteed 2% spread, GOI got the dollars they needed & some pr that indians supported them and retail banks with an india presence made money by lending against RIB at a spread of 1%.   They ran the same play in 2000-01 with the millenium(?) bonds.  The only difference this time around is that the current account deficit in absolute terms is much wider and therefore the terms have to be much more attractive.

  Hope they do it again then, please update here... Online app. would be great...

IF they really want some pr that indians support, hope that GOI makes the OCI app. completely online or less cumbersome as well

PatelForIndia said:   In India, I heard:  "If 100 criminals walks away without punishment then it's fine, but one innocent should not be punished."  

So my point is: If I do not earn interest on principle then it's fine, but I cannot afford to loose principle amount as its earned by doing hard work. So, if it's not FDIC Insured, then it will not give well sleep.

When I went India last winter, I stayed in touch with one ICICI NRI manager, to know about options and benefits. First of all, he recommended me to transfer money to Rs and take benefit of 9% to 10% interest rate, but he did not alerted me on risk of loosing gain on Currency Risk

(Those who do not know what is this currency risk, here is quick calculation:  Lets say, last year when Indian Banks brought 9% to 10% Interest rate scheme, at that time $1 = 56 Rs rate was. So you sent $1.78 ( 100 Rs) to deposit in Indian Bank. now, one year is over and they given you 10% interest, so right now, you got 110 Rs. balance in India Bank. Now you want to bring this money to USA. so right now rate is going on $1 = 64 Rs. so 110 Rs when you bring back to US, you get $1.71 in your hand (remember, last year you had sent $1.78 to India). So, this turned out to be loosing principle + hassle of transfer back and forth. Plus when you transfer back and forth, even Bank is saying, they advertise $0 fee to transfer, they make money in transfer rates.)

ICICI Manager did not reveal me all internals so I told him, this is not going to work, so then he introduced me ICICI Guaranteed Savings Insurance Plan  Game is something like this: for example, from 1st year to 9th year, you pay 1 Lacks per year and then from 9th year onward, you do not have to make any payment, and at 15th year, they give you very big amount back (like 15 Lacks or more) plus during this 15 years time they cover you by Insurance policy also.  By hearing it feels like very good scheme, you get impress with it, later...I did little research and found this article      for this scheme...  By reading it, it's looks like, this scheme is product of very intelligent mind, where general public can easily gets impress and gets in a bottle. But after reading calculation and breakdown, it shows that, without using this scheme, you can make more money yourself by following it.

Also, I felt like, meaning of  "Customer Service"  for Indian Banks is very poor, For minor-minor matters it takes lots of effort to get resolved or you have to give up. They place charge on your account without revealing terms and condition first, and once you see charge, it takes much effort to get removed. For example, ICICI Bank prints security verification code table behind Debit Card only, it means, if you have to do online transfer from ICICI Bank to other ICICI Bank, then you need to have this debit card from Bank. While staying in USA, what is use of Indian Bank debit card ? Accepting Debit Card from ICICI Bank means, opening a security flow yourself to your account. I have read couple of news in past, that, In India, people have lost money from their account without account owners knowledge and finally news comes in the newspaper about police complain..etc.etcc. In short, To get online transfer facility, ICICI Bank is forcing you to take their Debit Card so you can use verification code table from backside of card, and by doing this, they charges you Debit Card Fee per year (even you do not have need for Debit Card).  Indian TV commercials and Financial Products are very intelligent, interesting and impressive.

So, money wise, I have better trust in US Economy and their effort to fix it. To manage my retirement plan, I have more trust in me, then depending on Social Security.. If you have time, there are lots of way to earn by investing your dollar in US economy.. If your money is in US, you can do anything with it instantly with changing market and economy, which is not possible with uninsured Indian Banks. If you check with local banks, they have Promotional Money Market Rate for 1%, no strings attached.

  
excellent post, great info above and very nicely sums up all the issues we face in India (I am also very reluctant to send $$ back home unless required).
Metlife insurance in india started the above insurance scheme and my father bought into it, returns are below market and they charge fees/commissions at front and end.... darn it! (and no transparency or honest advertising).

1) If you do a FCNR deposit below $10k , do you need to file Income Tax returns in India?

2)Same question for these India bonds , do you need to file Income Tax in India?
Thanks

FCNR/NRE accounts are not taxed in India. I am not sure about Bonds

And the wild card that is rajan has spoken.... Cross currency swaps are being subsidized starting today... Should see a move up in the fcnr rates... Keep an eye on what icici and hdfc offer on fcnr

please post rates/ app. links...

but definitely avoid Citi. Made the mistake of opening a Rs. account with them. It's dormant. They said I have to do a transaction to revive. But it's dormant so I cant. Circular logic...

India would be wise to raise rates and start selling their foreign reserves to support their currency. Specifically US treasuries, which are losing value on a daily basis as rates rise.

Everything else is just a gimmick. All of the taxes, capital flow limits, and import restrictions are just going to lead to black market imports of gold.

India is winning the currency war in the race to devalue and they are not liking the outcome. The whole premise of devaluing was to make exports more competitive but it is having the opposite effect. Inflation is taking off,  input costs rise, exports are falling in real terms, and their trade deficit is growing.

Will India's bureaucrats be smart enough to not make the same mistake again? My guess is no. I bet they will keep trying the same thing they know doesn't work.

Skipping 19 Messages...
For preserving the money in dollars, and getting the better interest( more than 6% p.a), can we do it online or are there any physical banks in US which do that?



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